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India has a housing bubble. Ask these people! - Views on News from Equitymaster
 
 
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  • Jul 2, 2010

    India has a housing bubble. Ask these people!

    India's real estate companies and property agents claim that there is no housing bubble in India. But ask those aspiring to buy their first house and you will know whether a bubble exists or not! Please note that we are not talking here about the middle class in India. It is now rich enough to afford a small home in a big city. After all, this section of the population can borrow to buy a home.

    But think about those whom bankers do not even consider fit enough to borrow. The taxi drivers, the housemaids, the office boys, junior executives, or even the workers who builds homes we live in! A housing bubble definitely exists for them in India's cities.

    See this chart and you will know how.
    * BHK-Bedroom-Hall-Kitchen

    We have assumed the following data in preparing this chart.

    Key assumptions...
    Cost of a 1BHK home in far flung Mumbai suburbs = Rs 15 lac
    (Rs)
    Monthly income
    Monthly savings @ 50% of income
    Annual savings
    Years to buy a 1BHK home of Rs 15 lac
    assuming the entire 50% savings is used
    Construction worker 5,000 2,500 30,000 50
    Housemaid 7,500 3,750 45,000 33
    Taxi driver 10,000 5,000 60,000 25
    Officeboy 12,000 6,000 72,000 21
    Junior executive 15,000 7,500 90,000 17

    So there you are. At his current monthly income, a construction worker can save and save for 50 years before he can even think of buying a 1BHK house in Mumbai. We have not assumed any increase in his monthly income just as we have not assumed any increase in the property's price.

    Anyways, even if one assumes the case of some other city, and takes a 50% cut on the property price, the average construction worker will still need to add up savings for around 25 years before being able to afford a 1BHK house for his family!

    See, we are not trying to prove that the housing bubble exists in entire India. But it definitely exists in places which are seeing mass inflows of poor immigrants. Mumbai is just one example. And 1BHK is the bare minimum that one can call a 'home' for a family of 4-5 people.

    So, if real estate companies touting their grand plans for affordable homes tell you that there is no housing bubble in Mumbai or anywhere in India, you know what your views are. After all, you might be feeling the pinch too in your search for a 2BHK or a 3BHK property in an Indian city!

     

     

    Equitymaster requests your view! Post a comment on "India has a housing bubble. Ask these people!". Click here!

    3 Responses to "India has a housing bubble. Ask these people!"

    chandratre

    Dec 3, 2010

    The Bubble is supported by Banks, What are the banks estate evaluators doing ? they are risking the depositors money. RBI is just sitting mum.Second is the Black Money that has condensed. Unless Government makes a law for taxation such that the first house has x tax , second 2x and third 3x , the investor will not vanish form the market. Government should Nationalise the housing industry or put in place a TRI like body for real estate.

    Like 

    raj

    Sep 14, 2010

    I agree India has a housing bubble but thing is that it is not exposed. The property market what we see in India is not real it is hyped, unreal and way different from the actual market. This proves that rupee value has fallen tremendously without any infrastructure development and investors are at a very high risk. If exposed ! the marekt would be Topsyturvey. Only smart analysts know very well about it ! rest all are sleeping !

    Like 

    vivek

    Jul 14, 2010

    its because of black money from big people and politician causing bubble and nobody complaining as politics is involved.. this is even worst than British era.. poor becoming more poor and rich more richer by tax evasion..

    Like 
      
    Equitymaster requests your view! Post a comment on "India has a housing bubble. Ask these people!". Click here!
     

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